§ 2. Effect of Illeoalitt upon Contracts in

vthich it exists.

What is the We now come to the second branch of the subject of

illegality. Illegality in Contract, its effect upon the validity of a con-

tract. The effect of illegality upon the validity of contracts

in which it appears must of necessity vary according to

circumstances. It may affect the whole, or only a part of a

contract, and the legal and illegal parts may or may not be

capable of separation. The direct object of a contract may

be the doing of an illegal act, or the direct object may be

innocent though the contract is designed to further an illegal

purpose. The parties may both be ignorant, or both be

^aware qf the illegality which remotely or directly affects the

Chap.V. §a. LEGALITY OP OBJECT. l8l

transaction, or one may be innocent of the objects intended

by the other. Securities may be given for money due upon

or money advanced for an illegal purpose, and the validity

of such securities depends upon various considerations. The

most that can be done here to elucidate a very complex and

lengthy branch of the law is to lay down some rules which

will answer roughly, but it is hoped not inaccurately, the

questions thus suggested.

When the contract is divisible,

(i) Where the contract consists of several parts, so that Legal parts

., y 'v-i i»jx» of contract

there are several promises based on several considerations, ^^ ^^ sever-

the fact that one or more of these considerations is illegal ^ *^ p^^"

® siMefrom

will not avoid all the promises if those which were made upon ill^al.

legal considerations are severable from the others. This

is an old rule of law explicitly laid down in Coke's Reports, Pigot's case,

' That if some of the Covenants of an Indenture or of the

conditions endorsed upon a bond are against law, and some

good and lawful; that in this case the covenants or con-

ditions which are against law are void ab initioy and the

others stand good.'

The rule applies whether the illegality exist by Statute or

at Common Law, though at one time the judges held dif-

ferently, and fearing lest statutes might be eluded, laid it

down that * the statute is like a tyrant, where he comes he

makes all void, but the common law is like a nursing father,

makes only void that part where the fault is and preserves

the rest.* This distinction has however been held in several

modem cases to be without foundation.

The most frequent illustrations of the general proposition

are to be found in cases where a corporation has entered

into a contract some parts of which are ultra vires, and

so, in a sense, unlawful. In such cases it has always been

held that ' where you cannot sever the illegal from the legal

l8:Z FORMATION OF CONTRACT. Part II.

Per wiiies. J., part of a covenant the contract is altogether void, but where

m Pickernnf v. ■*■ o '

R^'niay.'''' JOVL can sever them, whether the illegality be created by

f R 2 C P

350- ' ' statute or common law, you may reject the ba(^ part and

retain the good^/

When the contract is indivisible.

(ii) Where there is one promise made upon several con-

siderations, some of which are bad and some good, the

promise is wholly void, for it is impossible to say whether

the legal or illegal portion of the consideration most affected

the mind of the promisor and induced hi^ promise. An old

case which may be quoted in its entirety will illustrate this

proposition.

Featherstone The grouuds of actiou wcrc stated to be, * That whereas the

V. Hutchinson, ^ ^

cro. Eiit 199. plaintiff had taken the body of one H. in execution at the

suit of J. S. by virtue of a warrant directed to him as special

bailiff j the defendant in consideration he would permit him

to go at large, and of two shillings to the defendant paid^

promised to pay the plaintiff all the money in which H.

was condemned : and upon assumpsit it was found for the

plaintiff : and it was moved in arrest of judgment, that the

consideration is not good, being contrary to the statute of

23 H. 6, and that a promise and obligation was all one.

And though it be joined with another consideration of two

shillings, yet being void and against the statute in part it is

void in all.'

Where the direct object is unlawful but the intention innocent.

Direct ob- (iii) Where the direct object of the parties is to do an

iuegal/ the illegal act the contract is void. It does not matter whether

^ These cases may serve as an illustration o{ the proposition before ns,

L. R. 7 H. L. but it must be borne in mind that Lord Cairns, in The Ashhury Car-

^^^ riage Co. v. Ricke, has pointed out that contracts of this nature are

invalidated not so much by the illegality of their object as by the

incapacity of the corporation to bind itself by agp*eement for purposes

beyond its statutory powers.

Chap. V. § a. LEGALITY OF OBJECT. 1 83

or no they knew that their object was illegal, * ignorance of contract is

the law excuseth none/

But the knowledge of the parties may become important unless

if the contract admits of being performed, and is in fact per- in^t be

formed in a legal manner, though the performance unknown Jj^sent and

to the parties would have directly resulted in a breach of tract can be

lefi^allv Der~

the law. In Waugh v. Morris the defendant chartered the form«i.

plaintiff's ship to take a cargo of hay from Trouville to London. ^R- « Q. b.

The cargo was to be taken from the ship alongside, and was

intended to be landed at a wharf in Deptford Creek. Un-

known to the parties an Order in Council had forbidden the under 33 & 33

Vict. c. 70,

landing of French hay. The defendant, on learning this, co',uejfious

took the cargo from alongside the ship without landing it, (ArTi^iI) Act.

and exported it. The vessel was delayed beyond the lay-

days and the plaintiff sued for the delay. The defendant set

up the illegal intention as avoiding t!he contract, but without

success. * "We agree,' said Blackburn, J., in delivering the

judgment of the Court, 'that where a contract is to do a

thing which cannot be performed without a violation of the

law, it is void whether the parties knew the law or not. But

we think that in order to avoid a contract which can be

legally performed, on the ground that there was an intention

to perform it in an illegal manner, it is necessary to show

that there was the wicked intention to break the law ; and

if this be so, the knowledge of what the law is becomes jof

great importance.'

Where the direct object is innocent hit the intention urdavjfvl,

(iv) Where the object of a contract is innocent in itself but Illegality of

is designed to further an illegal purpose, the contract is void avoSs an

if both parties knew of the ille^l purpose at the time the otherwise

^ o A X innocent

contract was entered mto. contract.

There is nothing illegal in a loan of money or a supply of

goods ; but if these are known to be intended to further an

184 FORMATION OF CONTRACT. Part II.

illegal purpose, neither the money lent nor the goods sup-

plied can form the subject of an action. The whole transaction

is void. The law upon this subject rests mainly upon three

cases which will furnish convenient illustrations of the rule.

3 B. & Aid. 179. The first of these is Cannan v, Bryce (18 19), in which the

assignees of a bankrupt sued for the proceeds of goods which

they asserted to be a part of the bankrupt's property. The

goods had been assigned by the bankrupt to the defendant

in part satisfaction of a bond which was to secure to the

defendant the payment of money lent by him to the bank-

rupt to meet losses arising from stock -jobbing transactions

which were illegal under 7 Geo. II. c. 8. It was held that

the lending of the money, the bond, and the assignments

under the bond (which were made after bankruptcy) were

all alike void, and that the plaintiffs could recover the pro-

ceeds of the goods. There was no doubt that the defendant

knew the illegal object to which his money was to be applied ;

and Abbott, C. J., in giving judgment, said, 'Then as the

statute has absolutely prohibited the pa3rment of money for

compounding differences, it is impossible to say that the

making such payment is not an unlawful act : if it be un-

lawful in one man to pay, how can it be lawful for another

to furnish him with the means of payment? It will be

recollected that / am speaking of a ease wherein the rneans

were furnished with a full knowledge of the object to which

they were to he applied^ and for tJie ex2)ress pur2>ose of a/^com"

2)lishing that object.^

M.&W.43S The second case is M^KinneU v, Robinson (1838). Here

an action was brought to recover a sum of money lent, as

the plaintiff knew, for the purpose of playing at * Hazard,*

a game which, apart from 9 Anne, c. 14, is prohibited by

12 Geo. II. c. 28. It was held that the plaintiff could not

recover, on the principle * that the repayment of money lent

for the express purpose of accomplishing an illegal object

cannot be enforced.*

Chap. V. §3. LEGALITY OF OBJECT. 185

The third case is Fearce v. Brooks (1866). The action l r. 1 exch.

was brought by coach -builders to recover payment for the

hire of a brougham engaged by a prostitute. Evidence was

given that the plaintiffs knew the character of the defendant,

and from this, and from the nature of the article supplied,

the jury found that the plaintiffs knew that it was supplied

for the furtherance of an immoral purpose. Upon this it

was held that the plaintiffs could not recover. * My diflS- p- "°-

culty was/ said Bramwell, B., ' whether, though the defend-

ant hired the brougham for that purpose, it could be said

that the plaintiffs let it for the same purpose. In one sense

it was not for the same purpose. If a man were to ask far

duelling pistols, and to say " I think I shall fight a duel to-

morrow," might not the seller answer, " I do not want to

know your purpose ; I have nothing to do with it ; that is

your business; mine is to sell the pistols, and I look only

to the profit of trade." No doubt the act would be immoral,

but I have felt a doubt whether it would be illegal ; and I

should feel it still but that the authority of Cannan v, Bryce

and M^Kinnell v. Robinson concludes the matter.' These

words exactly indicate the distinction between this class of

contracts and those described in (iii). It U not necessary that

the parties to a contract primd facie innocent should bind

themselves to adapt it to an illegal purpose in order to avoid

it. It is enough that the one party knows the unlawful

intent of the other, and knows that the contract is intended

to be applied to carry it out.

But a loan of money, designed to satisfy debts arising Distinction

from a past illegal transaction, is distinguishable from the wara'ct

cases just cited. In Cannan v. Bryce the statute had for- %P|^A,d 1

bidden, not only stock-jobbing transactions of a certain sort, 7 ceo. 11. c. 8.

but advances of money to pay debts arising from them : in .

the other two cases the illegality was still in contemplation

when the contract was made.

And so in Fyke's case a loan of money intended to pay lost J^^^- ^^'^ ^^-

1 86

FORMATION OF CONTRACT.

Part II,

Innocent

party may

avoid con-

tract.

I^ R. 3 Exch.

and see Clay

V. Ya*es,

I H. & N. 78.

Securities

for money

due on

illegal

transac-

tion.

bets was held to be recoverable from the estate of the bank-

rupt borrower. *The mischief had been completed/ said

Jessel, M. K., ' the illegal act had been carried out, before the

money was lent. The money was advanced to enable the

borrower to pay the bets which he had already made and

lost, which seems to me an entirely different thing from a

loan of money to enable a man to make a bet.'

Where the unlawful intention is on one side only,

(v) Where one of two parties intends a contract, innocent

in itself, to further an illegal purpose, and the other enters

into the contract in ignorance of his intention, the innocent

party may, while the contract .is still executory, avoid it

at his option. In Cowan v, Milhourn, the plaintiff sued

the defendant for breach of an agreement to let him a set

of rooms. It appeared that the plaintiff intended to use

the rooms for the purpose of delivering lectures which

were unlawful, as being blasphemous within the meaning

of 9 & 10 Will. III. c. 32. The defendant was not

aware of the use to which the plaintiff meant to put the

rooms at the time the agreement was made ; and he subse-

quently refused to allow the plaintiff to use them, though he

did not at first allege the character of the lectures as the

ground of his refusal. It was held that he was entitled to

avoid the contract, and was not bound to give his reasons.

Secv/riiies for money due on illegal transactions,

(vi) Where a promise has been given to secure the pay-

ment of money due or about to become due upon an illegal

transaction, the validity of such a promise is based upon two

considerations : —

a. Whether the transaction is illegal or void.

0. Whether or no the promise is made under seal.

Where the promise is given in the form of a negotiable

instrument, a further question arises as to its value in the

Chap.V. §2. LEGALITY OF OBJECT. 1 87

hands of third parties, and this is affected by the answer to

the first of the considerations above stated.

There is a difference, not very easy to analyse but of con-

siderable practical importance, between cases in which Com-

mon Law or Statute make an object illegal, aud cases in

which they make a transaction void. The distinction has

been thus stated : * A thing may be unlawful in the sense Per Bramweii.

O J B., in Cowan

that the law will not aid it, and yet that the law will not L^!^a°ETch.

immediately punish it ; ' but this dictum does not exactly Distinction

describe the difference between the cases, inasmuch as it does between

. ' illegal '

not cover all the cases in which the difference exists. A bet and 'void.'

upon a cricket-match, for example, is not punishable, but

it is more than merely void, as has already been explained.

The effect of the difference is this, that in the one case the The • taint

J , . Ml 1 •! J' of illegality.'

promise is regarded as given upon an illegal consideration,

in the other upon no consideration at all : in the one case Per curiam in

. ... Fishery.

everything connected with the transaction is ' tainted with ^^^g. 642.

illegality,' in the other collateral contracts arising out of the

avoided transaction are under certain circumstances sup-

ported.

In cases where the transaction is illegal, a promise under Effect of

seal given to secure the payment of money due upon it is ^^jjjg

void. This was decided in the case of Fisher v. Bridges by illegal.

3 E. & B. 642.

the Court of Exchequer Chamber, reversing the judgment

of the Court of Queen's Bench. The plaintiff sued the

defendant upon a covenant to pay a sum of money. The

defence was, that the covenant was security for the payment

of a sum of money due upon a purchase of land agreed to

be sold for a purpose declared to be illegal by Statute. The laceaiicag.

Court of Queen's Bench held that the defendant was bound,

inasmuch as there was nothing unlawful in a simple promise

to pay money. The Court of Exchequer Chamber held that

the illegality when proved tainted the subsequent promise,

and that this was not a simple promise to pay money, but

J 88 FORMATION OF CONTRACT. Part II.

that it * Epraug from and was the creature of an illegal trans-

action/

If a promise under seal would be void under these circum-

stances, it is obvious that a parol contract, even if based in

paii upon some new consideration, would be void also.

Negotiable In the case of negotiable instruments we have to consider

merits' how ^^ot Only the effect of the illegality as between the original

affected by parties to the contract, but its effect upon subsequent holders

being of the instrument. In these cases, as we have already

^^** noticed, the ordinary presumption in favour of the holder

of such an instrument does not exist. Upon proof of the

illegality which tainted the instrument in itfl inception, the

holder is liable to have to show that he is a holder for value ;

that is to say, that he gave consideration for the bill : and

even then, if he can be proved to have been aware of the

illegality, he will be disentitled to recover.

Effect of "Where the consideration is not illegal but the transaction

bein^void, ^^ void, a promise given to pay money due upon such a trans-

action is based upon no consideration at all. If made under

seal it is binding, if by parol it is void. A good illustration

of this rule is to be found in the case of contracts from which

some formality necessary to the validity of the contract

has been omitted. A covenant to pay money due upon a

a. on pro- contract of this nature is binding. Thus where a corporation

seaT"" ^^ borrowed money upon mortgage without having first ob-

tained the approbation of the Lords of the Treasury, they

5 & 6 Will IV. did what the Municipal Corporations Act declared to be

* unlawful ; ' but having received the mortgage money and

entered into a covenant to repay it, they were held bound

Payne V. Mayor by thcir covcuaut : 'Although the mortgage may be invalid,

of Brecon, " '=' . ,

3 H. & N. 579. that IS no reason why the corporation should not be liable

upon their covenant to repay the mortgage money.' So too

ill the case of promises of payment made in consideration

conu-^^; ®^ P^* illicit cohabitation, such promises are invalid if made

Chap. V. §2. LEGALITY OF OBJECT. 1 89

by parol, not on the ground that the congideratiou is illegal, Beaumont v.

but because there is in fact no consideration at all. But a ^ y- ^ ^^

Ayerst v.

bond given upon such past consideration would be binding. j*"J^"J; Eq.

Negotiable instruments given upon such considerations ^^'^^ „

are, as between the original parties to them, voiil, for the ^^^^^^ ^^-

. 1 1 ^ . t . 1 • 1 stniments.

reason just stated, that they are simple contrnct-i in which

the promise is made in consideration of a transaction which

raises no legal obligation, and therefore cannot support it.

But where the negotiable instrument has passed into the

hands of a subsequent holder, such a holder is not affected

by the fact that as between the original parties the promise

is voluntary. In Fitch v, JoneSj a promisory note was given 5 e. & b. 245.

l)y the defendant to X in payment of a bet made on the

amount of hop duty in the year 1854. X indorsed the note

to the plaintiff. The main question for the Court was,

' whether the plaintiff was bound on proof of the oiigin of

the note to show that he had given consideration for the

note, or whether it was for the defendant to show that he

had given none.*

* I am of opinion,' said Lord Campbell, * that the note did

not take its inception in illegality within the meaning of

the rule. The note was given to secure payment of a wager-

ing contract, which, even before stat. 8 & y Vict. c. 109, the

law would not enforce * : but it was not illegal : there is no

penalty attached to such a wager ; it is not in violation of

any statute, nor of the Common Law, but is simply void,

so that the consideration was not an illegal consideration,

but equivalent in law to no consideration at all.'

Can a mem be relieved from a contract which lie knew to

be unlawful f

(vii) It remains to consider whether a party to an illegal illegality,

. , J • i. 1 "J. !• known at

contract can under any circumstances make it a cause of the time.

* It had been held in a previous case, Atherfold v. Beard, that a 2T. r. 61a

wager on the amount of hop duty was against public policy ; because

190 FOBMATION OF CONTBACT. Part II.

no ground action. We may lay down without hesitation the rule that

ance, ^ party to such a contract cannot come into a Court of Law

phSS5ha\'e ^^^ ^^ *^ have his illegal objects carried out ; nor can he

L^^R.^fo^QiB. set up a case in which he must necessarily disclose an illegal

499* i»

purpose as the groundwork of his claim. The general rule

is well expressed in the maxim, ' in 2><^^ delicto 2>otior est

conditio defendentis,^

But there are some exceptional cases in which a man may

be relieved of an illegal contract into which he has entered,

cases to which the maxim just quoted does not apply. These

unless would appear to group themselves in two classes: (i) cases

^oifnpari ^^ which the plaintiff has been induced to enter into the

delicto, contract under the influence of fraud or strong pressure;

or a locus (2) cases in which, the contract being unperformed, money

remains. '^^ P^^^ ^^ goods delivered in furtherance of it have been held

recoverable.

The firat class of cases are best illustrated by the decisions

iD. M. &G. in Reynell v. Sprye and Atkinson v. Denby, In the first

6 H. & N. 778. case the plaintiff had been induced, by the fraud of the

defendant, to make a conveyance of property in pursuance

of an agreement which was illegal on the ground of cham-

perty. He sought to get the conveyance set aside in Chan-

cery. It was urged that the parties were in pari delicto,

and that therefore his suit must fail ; but the Court being

satisfied that he had been induced to enter into the agree-

ment by the fraud of the defendant, considered that he was

entitled to relief. * Where the parties to a contract against

public policy, or illegal, are not in pa/ri delicto (and they are

not always so), and where public policy is considered as ad-

vanced by allowing either, or at least the more excusable of

I n. M. G. the two, to sue for relief against the transaction, relief is

p. 669. ' ° '

given him.'

6H. &N. 778. The case of Atkinson v, Denby is a peculiar one, and

7 H. & N. 934.

the evidence at the trial would expose to the world the amount of the

public revenue.

Chap.V. §2. LEGALITY OP OBJECT. I91

appears almost to indicate an approach on the part of the

Common Law Courts to the equitable doctrine of Undue

Influence. The plaintiff, a debtor, offered his creditors a

composition of 5«. in the pound. The defendant was one of

the creditors, and his acceptance or rejection of the offer was

known to be certain to determine the decision of several

other creditors. He refused to assent to the composition

unless the plaintiff would make him an additional payment

of JB50, in fraud of the other creditors. This was done :

the composition arrangement was carried out, and the

plaintiff sued to recover tlie £50, on the ground that it was

a payment made by him under oppression and in fraud of his

creditors. It was held that he could recover ; and the Court

of Exchequer Chamber, in affirming the judgment of the

Court of Exchequer, said, ' It is said that both parties are

in pari ddieto. It is true that both are in delicto, because

the act is a fraud upon the other creditors; but it is not

par delictum, because the one has pouoer to dictate, tite other

no alternative but to suhmit*

The second exception to the general rule may best be stated

in the words of Mellish, L. J., in Taylor v. Bowers, *If q.^b^d*

money is paid or goods delivered for an illegal purpose, the While the

person who had so paid the money or delivered the goods may L^^ jg^"^"

recover them back before the illegal purpose is carried out : executory

there is 3.

but if he waits till the illegal purpose is carried out, or if he locus poeni-

seeks to enforce the illegal transaction, in neither case can '^ ^^''

he maintain an action; the law will not allow that to be

done.' The case was one of a fictitious assignment of goods

to a third party with a view to defraud the creditors. The

goods were then assigned to the defendant, and the plaintiff,

the debtor, demanded them back. Nothing had been done

towards carrying out the fraudulent intention of the parties,

and the plaintiff was held entitled to recover. The rule

seems to come to this, that until an illegal purpose is carried

out there is a IoCub poenitentiae for one who has contributed

192 FORMATION OF CONTRACT. Part II.

T L. R., Q. B. goods or money for such a purpose. The case of Ham'pden

V, Walsh is another illustration of the same rule. The

plaintiff and another person ewch deposited £500 with the

defendant to abide the decision of two scientific men as to the

shape of the earth ; the decision went against the plaintiff,

but before the money was paid over he claimed it back, and

it was held that he was entitled to recover it. He had repu-

diated the wager before the money had left the hands of the

varney v. stakeholder, and the Court held, on the authority of several

Hickman, ' ' "^

lu'rSnT' cases, that the 8 & 9 Vict. c. 109. s. i8 did not deprive a

io*eT737 party to a contract, thereby rendered void, from repudiating

the contract and recovering the money advanced before it

had been paid.

Part III. OPERATION OP CONTRACT, 193

PAET III

THE OPERATION OF CONTRACT.

We have now concluded the subject of the Formation of

Contract. We have noted the various elements which must

needs co- exist in a valid contract, and we have farther noted

the effect which the absence of one of such elements pro-

duces upon the validity of a contract ; making it void, as in

the case of a mistake, or voidable, as in the case of fraud,

or simply unenforceable, as in the case of the neglect of

certain statutory forms. ?^

We come now to deal with the effects of a valid contract

when formed. We have to regard the contract as possessing

the needed elements of agreement and obligation, and we

have to ask, To whom does the obligation extend? Who

have rights and liabilities under a contract 1 And then this

further question arises. Can these rights and liabilities be

assigned or pass to others than the original parties to the

contract 1

We may lay down two general rules, which we will proceed

to explain and illustrate.

(i) No one but the parties to a contract can be bound by

it or entitled imder it.

(2) Under certain circiunstances the rights and liabilities

created by a contract may pass to a person or persons other

than the original parties to it, and this may take place, either

(a) by act of the parties, (^) by rules of law operating in

certain events.

o

194 OPERATION OF CONTRACT. Part III.

These two rules seem at first to look like one role subject

to certain exceptions, but they are in fact distinct. The

obligation binds only the parties to the agreement ; but these

parties, having created the obligation which binds them to

one another, may in certain ways and under certain circum-

stances be replaced by others who assume their rights or

liabilities under the contract. The rules may perhaps be

made clearer by an illustration.

(i) If John Doe make a contract with Eichard Itoe, that

contract cannot impose liabiUties or confer rights upon John

Styles.

(2) But there are circumstances under which John Doe

or Richard Eoe may substitute John Styles for himself as a

party to the contract, and there are circumstances under

which, given certain relations between John Doe and John

Styles, the latter would acquire the rights and liabilities oi

the former by operation of law.

Chap. I. LIMITS OF CONTRACTUAL OBLIGATION. 1 95

CHAPTER I.

The Iiimits of the Contractual Obligation.

We may safely lay down the general rule that a person, Contract

who is not a party to a contract, cannot be included in the confer

rights and liabilities which the contract creates so as to enable

him to sue or be sued upon it. This is not only established

by decided cases, but seems to flow from the very conception

which we form of contract. A contract is an agreement

between two or more persons, by which an obligation is

created, and those persons are bound together thereby. If rights

the obligation takes the form of a promise by -4 to X to

confer a benefit upon M, the legal relations of M are never-

theless unaffected by that obligation. He was not a party to

the agreement. He was not bound by the vinculum juris

which it created, and the breach of that legal bond cannot

affect the rights of a party who was never included in it.

Nor, again, can liability be imposed on such a third party or liabilities

unless he be a party to the contract. One characteristic of ^^L '^

the contractual as opposed to other forms of obligation consists

in this, that the restraint which it imposes on individual

freedom is voluntarily created by those who are subject to it,

is, in fact, the creature of agreement.

To this rule there are some apparent exceptions which it Apparent

may be well to dismiss before proceeding to illustrate ^y^^ ®**^^P ^*^"^-

rule from decided cases.

The relation of principal and agent forms an apparent Principal

exception to the rule just laid down. The principal incurs ^^ ^^^ *

liabilities and acquires rights under contracts which are

02

19^ OPERATION OF CONTRACT. Part III,

made between his agent and other parties. But the excep-

tion is no more than apparent. The agent is, in reality, only

the servant, or the mouthpiece of the principal. The prin-

cipal acquires his rights and liabilities because he authorised

the contract before, or ratified it after the agent made it. If

the agent exceeds such authority as is actually or presumably

given, he cannot bind the principal without ratification, nor

then unless he has acted professedly as agent. It is true

that if the agent contracts in his own name he may be made

liable upon the contract, but so may his principal, and it

would seem in cases of this nature that it is the principal

who is the primary contracting party, but that the agent

See App. B. has by his conduct entitled the person with whom he dealt

on Agency. " *

to affix upon him the liabilities of the contract.

In the case of principal and agent therefore we must

regard the two as one in the eye of the law, and the apparent

exception which they present to the rule as having no real

existence.

Trustee and A trust has this in common with contract, that it originates

trust! ^^^ ^^ agreement, and that among its other objects it aims at

creating obligations. If we could really place a trust upon

the footing of a contract we might say that it formed a very

real and substantial exception to the general rule which we

have laid down. There can be no doubt that the creator of

a trust and the trustee do, by agreement, bring rights into

existence which a third party, the cestui que trust, may

enforce. But it is better at once to set aside trusts from the

discussion, and for this reason. Contract differs from other

forms of agreement in having for its sole and direct object

the creation of an obligation. The contractual obligation

difiers from other forms of obligation mainly in taking

its origin in the voluntary act of the parties obliged. A

trust and the obligations resulting from a trust correspond

to neither of these characteristics. The agreement which

creates a trust has many other objects besides the creation of

Chap. I. § I. LIMITS OF CONTEACTUAL OBLIQATIOK. I97

obligatiouB, these objects may include conveyance, and the

subsequent devolution of ['property. The obligation which

exists between trustee and cestui que trust does not come

into existence by the act of the parties to it. It is better

therefore, having noted the similarities between the contrac-

tual and the fiduciary obligation, to dismiss the latter alto-

gether from our inquiries.

We may now proceed to illustrate the general proposition

laid down at the commencement of this chapter : and it will

appear from what has gone before that the proposition is

susceptible of a twofold division. A man cannot incur

liabilities, and again, a man cannot acquire rights, from a

contract to which he was not a party.

§1.-4 man cannot incur liabilities from a contract to Contract

which he was not a 2>artt/. tosc^Lw-

This proposition is a part of a wider rule to the effect that third party.

liability ex contractu or quasi ex contractu cannot be imposed

upon a man otherwise than by his act or consent. A cannot

by paying X's debts unasked, make X his debtor ; * a man Dumford v.

cannot, of his own will, pay another man's debt without his Indsfe a^^'

consent and thereby convert himself into a creditor.' ^' '^' ^^'

And in like manner A and M cannot, by any contract into

which they may enter, thereby impose liabilities upon X. An

illustration of this rule is afforded in the case of Schmaling v. e Taunt 147.

Thomlinson, The defendants in that case employed X, a firm

of brokers, to transport a quantity of cocoa from London to

Amsterdam. X agreed with the plaintiff to put the whole

conduct of the transport into his hands, he did the work

and sued the defendants for his expenses and commission.

It was held that the defendants were not liable, inasmuch as

there was no privity between them and the plaintiff; that is

to say, that there was nothing either by writing, words, or con-

duct to connect them with the plaintiff in the transaction. X

was employed by the defendants to do the whole work for them,

198 OPERATION OF CONTRACT. Part III.

and there was held to be ' no pretence that the defendants

ever authorised them to employ any other to do the whole

under them : the defendants looked to X only for the per-

formance of the work, and X had a right to look to the

defendants for payment, and no one else had that right/

But does a A contract then cannot impose the burdens of an obligation

contract

impose a upon one who was not a party to it, but the case of Lumley

th\vdi^^ V, Gye raises the question whether it can impose a duty, upon

ties ? persons extraneous to the obligation, not to interfere with its

due performance. We use the term duty as opposed to

obligation as signifying that necessity which rests upon all

alike to respect the rights which the law sanctions, while

obligation signifies a special tie binding together definite and

assignable members of the community.

2 E. & B. 216. In Lumley v. Gye the plaintiff, being the manager of an

opera house, engaged a singer to perform in his theatre. The

defendant induced her to break her contract The plaintiff

sued the defendant for procuring this breach, and the ques-

tions raiseci took the following form. It was argued that an

action would lie against one who procured the breach of

any kind of contract, but that if that were not so an action

would lie, at any rate, for inducing a servant to quit the

service of his master.

Peculiar It may be taken that the relations of master and servant

1 f" f

mfwter^and ^^'^^ always been held to involve a right on the part of the

servant. master to bring an action against any one who enticed away

his servant, and so the Court was called upon to answer two

How far questions : Does an action lie for procuring a breach of any

to case of contract? if not, then does the exceptional rule ap[)lioable to

Lumley v. the contract of master and servant apply to the manager of

a theatre and the actors whom he engages to perform ?

The majority of the Court answered both these questions

in the affirmative. Coleridge, J., in an elaborate dissenting

judgment answered both in the negative, holding that the

action 'could not be maintained, because, first, merely to

Chap. r. §a. LIMITS OF CONTRACTUAL OBLIGATION. 1 99

induce or procure a free contracting party to break his

covenant, whether done maliciously or not, to the damage of

another is . . not actionable; second, that the law with regard

to seduction of servants from their masters' employ, in

breach of their contract, is an exception, the origin of which

is known ^, and that that exception does not reach the case of

a theatrical performer/

The case stands alone (it was decided in 1853), and no Singularity

reported attempt has since been made to bring an action for

a like cause. But it is important to bear in mind that a

considered judgment of the Court of Queen's Bench has laid

it down that a contract confers upon the parties to it rights

in rem as well as rights in personam ; that it not only binds

together the partiei^ by an obligation, but that it imposes

upon all the world a duty to respect the contractual tie.

^ 2, A man cannot acquire rights vmder a contract to which

he is not a party.

This is a rule which admits of fuller illustration than the Contract

•i_«« 1 'xi- J* • xj. • A. cannot con-

one which we have just been discussing. It is contrary f^^ rights

to the common sense of mankind that Af should be bound by °^ ^ ^^^^

, T» . ^ party,

a contract made between X and A . But if A and X make

a contract in which X promises to do something for the

benefit of M, all three may be willing that M should have all

the rights of an actual contracting party ; or if A, and a

group of persons which we will call X, enter into a contract,

it might be convenient that M should be able to sue on

behalf of the multitude of which X consists.

Where a 'contract is made by A and X for the benefit of at Common

M it is certain that M cannot sue at Common Law ; and the '

current of judicial opinion runs strongly against his being

able to sue in equity.

^ The exception which the law of Master and tServant seems to have

engrafted upon the Common Law in this matter is traced by the learned

Judge, in a detailed historical argument, to the Statutes of Labourers.

aOO OPERATION OF CONTRACT. Part III.

4 B. & Ad. 433- In Price v. Eaaton the plaintiff sued upon a promise made

by the defendant to X that in consideration that X would

work for him he would pay the plaintiff a sum of money.

It was held by the Court of Queen's Bench that the

plaintiff could not recover because he was not a party to the

contract) the members of the Court stating in different forms

the same reason for their decision. Lord Denman, C. J., said

that the declaration did not ' show any consideration for the

promise moving from the plaintiff to defendant.' Littledale, J.,

said, 'No privity is shown between the plaintiff, and the

defendant.' Taunton, J., that it was. 'consistent with the

matter alleged in the declaration that the plaintiff may have

been entirely ignorant of the arrangement between X and

the defendant :' and Patteson, J., that there was * no promise

to the plaintiff alleged J

not even if It was at one time thought that if the person who was to

to the pro- take a benefit under the contract was nearly related by blood

misee. ^ ^^ promisee a right of action would vest in him. But

I B. & s. 393. this doctrine was finally overruled in the case of TwedcUe v.

Atkinson by the Court of Queen's Bench. The facts of that

case were as follows: — M and N married, and after the

marriage a contract was entered into between A and X, their

respective fathers, to the effect that each should pay a sum of

money to M, and that M ahovld ha/ve power to sue for such

sums. After the death of A and X, M sued the executors of

X for the money promised to him. It was held that the

action would not lie, and Wightman, J., said, ' Some of the

old decisions appear to support the proposition that a stranger

to the consideration of a contract may maintain an action

upon it, if he stands in such a near relationship to the party

from whom the consideration proceeds, that he may be con-

sidered a party to the coDsideration. The strongest of those

1 ventr. 6. cascs is that cited in Bou/me v. Mason, in which it was held

that the daughter of a physician might maintain assumpsit

upon a promise to her father to give her a sum of monev

Chap. I. §2. LIMITS OF CONTRACTUAL OBLIOATION. 20I

if he performed a certain cure. But there is no modern case

in which the proposition has heen supported. On the con-

trary, it is now established that no stranger to the conatderor

tion can take advantage of a contract^ although made for his

benefit,* x a & s. »?.

Until very recently there was no doubt that a third party The doc-

could not sue alone in equity for benefits intended to be con- equity.

ferred upon him by the contract, although there is authority

for saying that he could join as co-plaintiff in a suit brought cresrory v.

by the actual promisee. 3 Mcr. ssa.

The mode in which the question has most commonly been

raised of late is in the case of articles of association of a

Company, in which the directors are empowered by the share-

holders to pay a sum of money to an original promoter of

the Company, or to one who has given labour or money

towards the starting of its existence.

The Common Law Courts have been unhesitating: in their Meihado v.

Porto Alepre

decision that no right of action accrues to the intended bene- l!"r!Tc?p'

ficiary under such a provision. But in the Court of Appeal ^^

in Chancery it has, in one case, been held that he can sue,

and Lord Hatherley is reported to have said that the case Touche v.

,, , Metropolitan

came * withm the authority that where a sum is payable by ^^""^{^^^^

A. B. for the benefit of 0. Z>., C. D. can claim under the^^*"*^'"

contract as if it had been made with himself.'

But the most recent decision on this subject seems to place

the relation of the parties on a footing which makes the above-

quoted dictum inapplicable to this class of case. In Eley v.

Positive GovemTYient Security Life Assurance Company , one of l. R. « ex. d.

the articles of association of the defendant Company provided

that the plaintiff should be employed as its permanent

solicitor. The action was brought for a breach of contract

in not employing the plaintiff. Lord Cairns, in delivering

the judgment of the Court of Appeal, says, * Articles of asso-

ciatioQ, as it is well known, follow the memorandum, which clJr4|^^cI?v.

states the objects of the Company, while the articles state the 7 h. t. at

p. 6671

20a OPERATION OF CONTBACT. Part III.

arrangement between the members. They are an agreement

inter socios, and in that view if the introductory words are

applied to Article ii8, it becomes a covenant between the

parties to it that they will employ the plaintiff. Now so far

as that is> concerned it is res inter alios acta, the plaintiff is

no party to it. No donbt he thought that by inserting it

he was making his employment safe as against the Company;

but his rel3dng on that view of the law does not alter the

legal effect of the articles. This article is either a stipulation

which would bind the members, or else a mandate to the

directors. In either case it is a matter between the directors

and shareholders, and not between them and the plaintiff'

This decision appears to be conclusive on this special

aspect of the general rule. Nevertheless the breadth of the

u R.6Ch.67i. language used by the Court in Touches case makes it impos-

See Pouock on siblo to sav that there is no doubt as to the operation of

Contracts. 198. •' -^

the rule in excluding the acquisition by third persons of

equitable rights under a contract.

Attempts Attempts have been made, but without success, to break

to enable a., ii»ai e • aj

third party the general rule m the case of unmoorporated compames

to sue for ^^^ societies who wish to avoid brinirinsf action in the names

many joint ^ ^ ° ^^

contractors of all their members. To this end they introduce into their

contracts a term to the effect that their rights of action shall

be vested in a manager or agent. Such a case is that of

L R. sc. p. Gra^ V, Pearson, where the managers of a Mutual Assurance

haveuni- Company, not being members of it, were authorised, by

faSwi!^ powers of attorney executed by the members of the Com-

pany, to sue upon contracts entered into by them as agents

on behalf of the Company. They sued upon a contract so

entered into, and the Court of Common Pleas held that they

could not maintain the action, 'for the simple reason, — ^a

reason not applicable merely to the procedure of this country,

but one affecting all sound procedure, — that the proper

p«r woics. J., person to bring an action is the person whose right has been

violated.' And Montague Smith, J., said, ' This is an attempt

Chap. 1.5 2. LIMITS OF CONTBACTUAL OBLIGATION. 203

to do what has been frequently but fruitlessly attempted

before, viz. to get rid of the difficulty of a large number of

people suing in their own names, — to appoint a public officer

without obtaining an Act of Parliament or a Charter of

Incorporation.'

The practical inconvenience under which bodies of this Statutory

description labour has been met in many cases by the Legis- Jf Jhe rule^

lature. Certain companies and societies are enabled to sue

and be sued in the name of an individual appointed in that

behalf ^

^ Statutes of this nature are —

7 Geo. rV. c. 46, relating to Joint Stock Banking Companies ;

7 Will. rV. and i Viet. c. 73, relating to companies formed

under letters patent ;

34 and 35 Yict. c. 31, relating to Trades Unions ;

38 and 39 Yict. c. 60, relating to Friendly Societies ;

and in many cases companies formed by private Acts of Parliament

possess similar statutory powers.

a04 OPERATION OP CONTRACT. Part III.

CHAPTER II.

The Assignment of Contract.

Assignment Wb now come to discuss the cases in which the contractual

of contract, r t «• j i x _i. j. at.

obligation may pass to one who was not a party to the

original agreement. We have seen that a contract cannot

affect any but the parties to it; but the parties to it may

under certain circumstances drop out and others take their

places, and we have to ask, first, how this can take place

by the voluntary act of the parties themselves, or one of

them.